Should we split finances 50-50? Keep the family home? Hang on, just where is all our money? Making smart financial decisions and avoiding mistakes at such an emotionally charged time as a divorce is tough.
But while separations are different for everyone, a few things are worth keeping in mind when you are dividing cash and other assets between you and your former partner.
Capital Partners financial adviser Kathryn Creasy said women often make the mistake of insisting on keeping the family home, even if the kids aren’t bothered and it will be to their detriment later.
A better financial option can sometimes be downsizing but remaining in the same suburb and sending children to the same school.
“A huge trap that women fall into is saying, ‘I want the family home’. They become really attached to it as the main asset,” Ms Creasy said.
“You have to be open to what might be the best financial strategy, even if it’s a little bit uncomfortable and it can take some time to get used to that.”
Ms Creasy said it was also important not to trade away superannuation just so you can have access to more cash in the short term.
“You see a lot of women who take assets that they can spend and use now, and get to their later 50s and 60s and have nothing for their retirement and have to go on the aged pension,” she said.
Sometimes an even split of cash and assets can be unfair when one partner came to the relationship with much more money than the other, or if someone, usually the mother, has taken time away from work to raise children, Ms Creasy said.
For example, if a couple split in their early 50s and the woman has taken time out of the paid workforce while the man has increased his salary over that time, it will take the woman longer to recoup her position after re-entering the workforce and starting on lower pay.
“If someone hasn’t been working, then their income earning capacity is reduced,” Ms Creasy said.
She told The New Daily one of the biggest problems, particularly for women, is not having a detailed understanding about how their money has been invested.
“They will know there is a superannuation fund … but they don’t engage themselves with how things run or how they interact with each other,” she said.
”They will know perhaps that there is an investment portfolio, but the fact that it’s invested completely in speculative shares, they might not know.”
It’s also not uncommon for people to discover their seemingly comfortable life was built on a mountain of debt.
“Sometimes you do have women who come in and they just didn’t realise that it was all a house of cards and everything is pretty well debt-funded,” she said.
“They live in the really nice suburbs, they’ve got a house, their kids go to private schools. But when they go to get divorced they realise there is really no equity. There is a lot of debt.”
Five steps to take if you are separating
1. Track down money, assets and liabilities
Ms Creasy said the first thing to do is to develop a good understanding of your financial position, including assets and liabilities.
Find out as much information as you can about your bank accounts, loan balances, superannuation funds, and details about assets and investments.
2. Access to cash
If you are working and your pay goes into a joint bank account, you might consider getting paid into an account held only in your name.
“There tends to come a point in time where a partner will close off access to bank accounts, so you want to make sure that you still have access to cash,” Ms Creasy said.
3. See a family lawyer
Ms Creasy recommends seeing a good family lawyer as soon as possible so you are aware of what you might be entitled to before making any agreements.
“It’s not a waste of money to have an initial appointment with someone … to tell you what the process is and to understand what you might be entitled to before you start making deals that might not be in your best interests.”
4. Update your will
The law varies from state to state and there are some exceptions, but generally divorce voids a will.
If you are separated but not yet divorced, you might consider updating your will so you can be sure any money or assets in your name will go to your children or other nominated people, rather than your ex.
5. Don’t go it alone
In addition to a lawyer, financial adviser and possibly an accountant, ensure you build a support team that includes family, friends and potentially a counsellor.